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TMI Blog2016 (6) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata, on 07.04.2011 ( ITA No.549/Kol/2011) against the revisionary order U/S 263 of the Act dt. 08.03.2011. 2. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary addition of Rs. 4,1 0,00,000/- made in assessment as deemed dividend u/s 2(22)(e) of the Act without considering and appreciating the facts and the explanations furnished both at the assessment and appellate stage. 3. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary disallowance of interest of Rs. 6,30,000/- paid to a party owing to the alleged failure to deduct tax at source u/s 40(a)(ia) of the Act without considering and appreciating the facts that the 2nd proviso to section 40(a)(ia) added by the F.A 2012 has retrospective effect and hence it is curative in nature applicable for this year under appeal. 3. Brief facts of the case are that the assessee filed its return of income declaring total income at Rs. 2,36,75,243/- u/s. 115JB of the Act on 20-11-2006. The assessment was completed u/s. 143(3) of the Act determining the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the above provision suggests that the AO shall have to give effect to the order passed by CIT u/s. 263 of the Act as per the procedure contemplated in the proviso attached therein to sub-section 2A of Section 153 of Act irrespective of fact that the appeal is pending before the Tribunal. In this case, the AO discharged his duties in compliance with the procedure as prescribed in the Act. In our opinion, the assessment made by the AO in pursuance of the order passed by the CIT u/s. 263 of the Act is valid, accordingly, ground no.1 raised by the assessee is dismissed. 7. Brief facts relating to the 2nd ground as recorded by the AO are that the assessee accepted loan of Rs. 4,10,00,000/-, which is more than 10% of paid up equity shares from M/s. Mega Resources Ltd during the assessment year under consideration. The assessee was holding 13,90,100 shares out of 1,20,00,000/- equity shares of M/s. Mega Resources Ltd. Before the AO the assessee submitted that it has only 1099300 of shares in M/s. Mega Resources Ltd as per register. The AO found that the assessee was holding 13,90,100 shares, which is more than 10% out of 1,20,00,000 equity shares of M/s. Mega Resources Ltd. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If a person is a registered shareholder but not the beneficial shareholder than the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. " From the above facts and circumstances the issue is very clear that the assessee is holding registered shares to the tune of 10,99,300 in Mega Resources Ltd. and not 13,99,100 as alleged by the revenue. No doubt the total shareholding of the assessee in Mega Resources Ltd. is to the tune of 13,99,100 but registered shareholders are to the extent of 10,99,300. We have to see only the registered shareholding and not the beneficial shareholder. For this, the assessee has filed evidence before the lower authorities and even before us now. In such circumstances, this issue being covered by the Special Bench of this Tribunal, Mumbai Bench in the case of Bhaumik Colour P. Ltd. supra, Respectfully following the same, we delete the addition and reverse the orders of the lower authorities. " 12. A perusal of the order of the Tribunal in the aforementioned case, it clearly establishes that the assessee is holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 6,30,000/- to M/s. Methoni Tea Ltd. Thus, the AO added the sum of Rs. 6,30,000/- u/s. 40(a)(ia) of the Act. 15. In appeal, the CIT(A) confirmed the said addition inspite of having submissions made by the assessee that the provisions of section 40(a)(ia) of the Act was not applicable for the assessment year under consideration in view of the second proviso as inserted by the Finance Act 2012, which was retrospective in nature. 16. Having aggrieved by order of CIT(A), ld. Counsel for the assessee before us prayed to restore the issue on hand to the file of AO and the issue under consideration is covered by the 2nd proviso of section 40(a)(ia) of the Act was inserted by the Finance Act 2012. On the contrary, the ld. DR has relied on the orders of the lower authorities. 17. Heard rival submissions and perused the relevant material on record. The Hon'ble High Court of Delhi in the case of CIT-1 Vs. Ansal Land Mark Township(P) Ltd while dealing with the case on hand, had an occasion to read down the decision of Agra Bench of Tribunal in ITA 337/Agra/2013 as it was relied on, and held and agreed with the view of Agra Bench of Tribunal reasoning and conclusion to the insertion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in .a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but, however, opined, the assessee cannot be viewed as a person in default in view of the first proviso to section 201(1) of the Act and further that the insertion of second proviso to section 40(a)(ia) of the Act was intended to benefit the assessee and it shall be viewed as in the same manner as that of first proviso to section 201(1) of the Act. 19. In the present case, the case of the assessee was that the interest paid to M/s Methoni Tea Ltd on unsecured loan and debited to the P/L account and did not deduct the tax U/Sec 194A of the Act. These facts are not disputed by the either of the lower authorities as it can be seen from the record. Therefore, the question before us whether the assessee could be treated as defaulter in view of the principle enunciated by the Hon'ble High Court of Delhi supra, we hold that the assessee cannot be a defaulter in view of the first proviso to section 201(1) r/w second proviso to section 40(a)(ia) of the Act. As opined by the Hon'ble High Court of Delhi supra that the second proviso to Section 40(a)(ia) is declaratory and curative in nature having retrospective effect from 01-04-2005 and the case on hand being for A.Y 2005-06, in our view, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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